The United States and Iran have reached a peace agreement to end the war and reopen shipping through the Strait of Hormuz. The news of this peace agreement has also brought relief to the global oil market.
Oil prices fell on Monday after US President Donald Trump and Iran’s deputy foreign minister announced the deal, the biggest drop since March.
Brent crude fell $3.58 per barrel, or 4.10 percent, to $83.75 per barrel on Monday. West Texas Intermediate (WTI) crude fell $4.1 or 4.72 percent to $80.87 per barrel. Oil prices fell more than 3 percent on Friday.
Pakistan has played a role as a mediator in the deal. Prime Minister Shahbaz Sharif said the United States and Iran will sign an agreement in Switzerland next Friday.
Earlier on Sunday, Donald Trump said that the Strait of Hormuz would now be ‘toll-free’ and that the US naval blockade of Iranian ports would also be lifted.
Iran’s semi-official Mehr News reported that according to the draft agreement, the Strait of Hormuz will be reopened under Iran’s own management within the next 30 days.
Tim Waterer, chief market analyst at KCM Trade, said, “There is a possibility that the supply of oil in the market will normalize. Traders are taking this positively. As a result, the impact of geopolitical risks on oil prices is now starting to decrease rapidly.”
The Strait of Hormuz, through which one-fifth of the world’s oil and liquefied natural gas (LNG) is transported, has been closed for more than three months due to the war. The closure of this vital route has disrupted the supply of millions of barrels of oil and gas to global markets.Read more
What remains in the US-Iran deal, including opening the Strait of Hormuz, lifting US sanctions
Investors are watching closely to see how quickly oil-producing countries can recover from the damage caused by the war in the Middle East, and to see how much shipping traffic in the region increases.
Vivek Dhar, a commodity analyst at Commonwealth Bank of Australia, said in a note that they expect Brent oil prices to be around $80 per barrel by the end of the year. However, there is a risk that prices could rise further due to various uncertainties.
Vivek also said that if oil supply through the Strait of Hormuz reaches even 60 to 70 percent of what it was before the war, the market will once again be oversupplied with oil.
